Monday, November 17, 2008

The Cost of Happy Hogs

This afternoon, my graduate student Lacey Seibert is giving her Master's Thesis defense. Her thesis concerns the cost of producing hogs under what many call improved animal welfare. A video of one of those "humane" farms can be viewed here. Compare that video to what traditional farms look like in the picture below.

Her results show that it costs $0.10 more per pound of live-hog (a hog ready for slaughter) under these higher welfare standards than in the traditional confinement farm shown above. Since one pound of live hog produces only 0.58 lbs of meat for the consumer (source), these higher welfare standards raise the cost of retail meat production by $0.1/0.58 = 0.17.*

Consequently, consumers would have to pay $0.17 more at the grocery store to provide hogs with a more content life. I think the current retail price of pork is about $3,** so this is an increase in pork prices of 0.17/3 = 6%. Anything wrong with this line of logic?

However, the farmer in the video seems to be claiming "antibiotic free". Many farmers who receive a premium due to the nonuse of antibiotics often deny antibiotics to sick pigs. That is not good stewardship. Organic farmers often provide poorer animal feeds, which leads to higher mortality rates. That is not good stewardship of animals either.

*Let Qf and Qr be the farm and retail quantity of pork. By definition, Qr= 0.58Qf, or Qf = Qr/0.58. The $0.1 per lb increase in costs raises meat costs by $0.1Qf = $0.1Qr/0.58, assuming that costs is passed onto the consumer in full. The per retail lb of this cost increase then equals ($0.1Qr/0.58)/Qr = $0.1/0.58 = $0.17.

**The current live hog futures price is $0.55 per lb of live hog, which is $0.55/0.58 = 0.95 per retail lb. For every dollar the consumer pays, the farmer receives $0.3. Thus, if the farmer receives close to $1 per retail lb, the consumer must be paying close to $3 per retail lb.